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India Gilts Review: End lower ahead of auction after volatile trade

Informist, Thursday, Jun 23, 2022

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended lower today as traders booked profits and made room for fresh supply at the 330-bln-rupee weekly gilt auction on Friday, though global cues limited the losses, dealers said.

 

The 10-year benchmark 6.54%, 2032 bond settled at 94.05 rupees, or 7.42% yield, as against 94.20 rupees, or 7.40% yield on Wednesday.

 

The government has offered to sell 40 bln rupees of a new 2024 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt.

 

Early in the day, traders booked profits after the recent surge in bond prices as global cues turned more benign, dealers said. The benchmark 2032 bond had jumped 1.44 rupees since Thursday.

 

Traders anticipated that the debt sale would go through even if investors demanded higher yields, with both the government and the Reserve Bank of India comfortable with current market levels, dealers said.

 

At the previous auction on Jun 10, the central bank had set a cut-off of 93.38 rupees or 7.52% yield on the 6.54%, 2032 bond.

 

Investors avoided purchases of the 10-year benchmark bond under 7.40% yield, expecting that they would be able to demand higher yields at the issuance of the gilt this week, dealers said.

 

Market sentiment was also hit after US Federal Reserve Chair Jerome Powell told lawmakers on Wednesday that the US central bank was not trying to engineer a recession, but was fully committed to bringing prices under control even at the risk of an economic downturn.

 

“It has been a volatile day, but I would say a lot of the price action has been decided because of the auction, and then Powell’s commentary, rather than the (Monetary Policy Committee) minutes,” a dealer

 

Minutes of the Monetary Policy Committee’s June meeting, released after market hours on Wednesday, were on expected lines and provided no fresh trading cues, dealers said.

 

There was a slight divergence between RBI officials and external members on the panel, but the comments suggested a consensus to hike the repo rate by at least 25 basis points at the next meeting in August, which had already been factored in, dealers said.

 

After August, further rate hikes may be more benign as the comments indicated hesitancy in hurting medium-term growth, which limited losses in gilts maturing under five years today, dealers said.

 

Short selling cooled off in the middle of the session, before primary dealerships placed short bets as prices recovered, preferring to cover them at the auction, dealers said.

 

The 6.54%, 2032 bond erased all losses briefly as overnight indexed swap rates plunged from the day’s high, noting a sharp fall in Brent crude oil prices and US Treasury yields, dealers said.

 

The five-year OIS ended at 6.93%, against 6.99% earlier in the day, as traders unwound fixed rate bets after crude oil prices slumped due to fears of a supply glut and weakening demand owing to aggressive monetary policy intervention.

 

The yield on the 10-year benchmark US Treasury note ended sharply lower on Wednesday at 3.16%, and fell to 3.12% by the end of Indian market hours today following Powell’s comments.

 

“OIS pass-through continues to affect the government security prices, there is a lot of marginal hedging activity that needs to be covered in gilts if there is a larger-than-expected unwinding in the 5-year OIS,” a dealer at a primary dealership said.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 314.95 bln rupees, compared with 367.50 bln rupees on Wednesday.

 

OUTLOOK

Government bonds are seen opening steady on Friday due to caution ahead of the 330-bln-rupee weekly gilt auction.

 

The government has offered to sell 40 bln rupees of a new 2024 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt.

 

Traders will keep an eye out for any sharp movement in crude oil prices or US Treasury yields for triggers early in trade.

 

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.46%.

 

 

Today

Wednesday

Price

Yield

Price

Yield

5.63%, 2026

 95.2000

 7.0839%

 95.2800

 7.0635%

5.74%, 2026

 94.8000

 7.1379%

 94.8700

 7.1177%

6.67%, 2035

 92.5600

 7.5595%

 92.8200

 7.5267%

7.54%, 2036 99.5300 7.5941% 99.6700 7.5776%6.54%, 2032 94.0475 7.4191% 94.2025 7.3951%

India Gilts: Erase losses as 5-year OIS falls on easing CPI view

 

 1330 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.2194.4593.8994.4094.20YTM (%)      7.39427.35747.44347.36517.3951

 

NEW DELHI–1330 IST–The 10-year benchmark 6.54%, 2032 bond prices erased all losses from earlier in the day, tracking a fall in the 5-year overnight indexed swap rate on the view that pressures on CPI inflation would ease, dealers said. Other on-the-run gilts were off lows tracking a recovery in the prices of the 2032 bond.

 

The 5-year OIS slumped to 6.88%, from 6.99% earlier in the day, as traders unwound fixed rate bets after crude oil prices slumped on fears of a supply glut and weakening demand due to aggressive monetary policy interventions.

 

Brent crude for August delivery traded under the key $110-a-bbl mark today.

 

“Powell has acknowledged a recession, and that is a definite red flag across emerging markets and will cause outflows from both equity and debt as the picture becomes clearer,” a dealer at private bank said.

 

“Whatever the consequences in US yields, the fall in Brent is definitely a positive for gilts, it is easing the inflation view,” the dealer said.

 

Federal Reserve Chairman Jerome Powell told lawmakers on Wednesday that the US central bank is not trying to engineer a recession, but is fully committed to bringing prices under control even at the risk of an economic downturn.

 

After an early round of profit booking and short selling, traders avoided aggressive bets before the 330-bln-rupee weekly gilt auction on Friday. 

 

Traders anticipated that the debt sale would go through even if investors demanded higher yields than current market levels, dealers said. At the previous auction on Jun 10, the Reserve Bank of India had set a cutoff of 7.52% yield on the 6.54%, 2032 bond.

 

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.35-7.45%. (Aaryan Khanna)

India Gilts: Fall after early rise on profit booking before auction

 

 0945 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54% 2032PRICE (rupees)94.1694.4594.1594.4094.20YTM (%)      7.40157.35747.40347.36517.3951

 

NEW DELHI–0945 IST–Government bond prices gave up early gains and fell today, as traders booked profits ahead of the upcoming supply of dated securities, following the recent surge in prices due to benign global factors, dealers said.

 

Traders also placed fresh short bets ahead of the 330-bln-rupee weekly gilt auction on Friday, dealers said. 

 

The government has offered to sell 40 bln rupees of a new 2024 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt.

 

“We had expected the yield on the 10-year 2032 bond to not fall below the 7.40% level on Wednesday,” a dealer at a state-owned bank said. “There is a belief that the recent rise in prices is overdone, so we expect prices to come down ahead of the auction on Friday.”

 

Bond prices rose in early trade tracking a fall in crude oil prices and US Treasury yields, dealers said.

 

Yield on the 10-year benchmark US Treasury note ended sharply lower at 3.16% on Wednesday on fears that the US Federal Reserve could cause a recession by aggressively tightening monetary policy to tame the elevated inflation.

 

These concerns weighed on crude oil prices, which settled sharply lower on Wednesday, as fears of a recession dented demand for fuel.

 

The Brent crude contract for August delivery ended at $111.74 per barrel on Wednesday, against $114.65 per bbl on Tuesday. Futures fell further in early Asian trade to $108.04 per bbl.

 

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.36-7.44%. (Shubham Rana)

India Gilts: Seen up as crude, US ylds fall; MPC minutes as expected

 

NEW DELHI – Prices of government bond are likely to open higher today as crude oil prices and US Treasury yields fell sharply on Wednesday, and as the minutes of the Monetary Policy Committee’s June meeting were on expected lines, dealers said.

Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.33-7.45%, as against 7.40% on Wednesday.

 

Yield on the 10-year benchmark US Treasury note ended sharply lower on Wednesday on fears that the US Federal Reserve would cause a recession by aggressively tightening monetary policy to tame the elevated inflation.

 

Federal Reserve Chairman Jerome Powell told congressional lawmakers on Wednesday that the US central bank is not trying to engineer a recession, but is fully committed to bringing prices under control even at the risk of an economic downturn.

 

Concerns over a possible recession have weighed on investor sentiment in recent weeks. Investors are increasingly worried that aggressive monetary tightening would tip the US economy into a recession.

 

These concerns weighed on crude oil prices, which settled sharply lower on Wednesday, as fears of a recession dented demand for fuel.

 

Meanwhile, US President Joe Biden called on Congress to pass a three-month suspension of the federal gasoline tax to help combat record pump prices and provide temporary relief to American families this summer. 

 

While lower pump prices could actually boost demand for fuel and support crude prices, analysts believe that traders are worried the Biden administration might take further measures to cool high energy prices.

 

The Brent crude contract for August delivery ended at $111.74 per barrel on Wednesday, against $114.65 per bbl on Tuesday. Futures fell further in early Asian trade to $108.04 per bbl.

 

On the domestic front, traders may cover their short bets after the minutes of the Monetary Policy Committee’s June meeting were on expected lines, dealers said.

 

Policymakers’ comments were seen guiding for more rate hikes even as some members of the rate-setting panel awaited fresh cues on inflation before the next policy meeting in early August.

 

During the day, traders may make rooms for the fresh gilts supply on Friday. The government has offered to sell 40 bln rupees of a new 2024 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt. (Shubham Rana)
 

 

End

US$1 = 78.30 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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Source: Cogencis

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